New Route Launched For Mongolian Coal By Russian Railways To the Pacific Ocean
Tuesday, 7 December 2010
According to Russian Railways (eng.rzd.ru) on 11/30/2010, “on 28 October the first goods train left Mongolia carrying coal via Russia to the Vostochny port, for export to Asia-Pacific countries. Up to this point, all freight routes from Mongolia via Russia went only to the West. In line with the Agreement on International Goods Transport by Rail (SMGS) rules, the estimated period for the delivery of the cargo, including time on both the Mongolian and Russian railway networks, was 22 days. However, the train completed the route in just six days, delivering the cargo to the Vostochny port on 3 November.”
The train carried 2,000 tons of coal from Tavantolgoi. After a year of talks Russian Railway has agreed on a 52% discount on freight tariff, making it three times cheaper than the rates charged by China. Ulaanbaatar Railway,however, has not lowered its rates that were raised on September 25.
John Lee, CEO of Prophecy Resource(TSX-VCY, www.prophecyresource.com) last close 0.95CAD) commented to Frontier Securities: “Our Ulaan Ovoo coal deposit sits right by the Naushki Mongolia-Russia gateway, giving us competitive advantage over other Mongolia exports through Russia to the east seaports.”
Anthony Milewski, Vice Chairman of Sharyn Gol JSC(MSE:SHG, www.sharyngol.com ,last close 10500MNT), Firebird-controlled MSE-listed regional coal miner in northern Mongolia with operating rail link has commented to Frontier Securities: "This is an exciting and historic development for Mongolia, Mongolian companies that mine bulk commodities and in particular Sharyn Gol JSC. The launch of rail freight services from Mongolia to Far East ports will help transform Sharyn Gol JSC into an International mining company by expanding its current markets (Mongolia, Russia and China) to countries such as Japan and South Korea. The rail link may further reduce dependency on any one customer and make Mongolia based mining companies, such as Sharyn Gol JSC,more profitable and competitive. I think this is another great milestone in the transformation of the Mongolian economy."
Kerry Griffin, Country Manager of Aspire Mining Limited (ASX:AKM ,last close 0.41AUD, www.aspireminininglimited.com ) coal developer which recently announced 330 million ton JORC coal resource in northern Khuvsgul province has commented to Frontier Securities: "It is good for Aspire and the Ovoot Project. In order to reach Japanese and Korean markets we need to have a rail link from Ovoot to Erdenet, which is the closest rail head. Access to the eastern Russian ports would then be via the trans-Mongolian and Trans-Siberian rail network, a feasible rail route through a scoping level study undertaken by Calibre Rail.”
According to World Bank Southern Mongolia Infrastructure Strategy Report,"It would be useful for Mongolia to have an alternative export route through Russia, if only to gain greater bargaining power in negotiating freight rates for export through China. Exports through Russia will, however, be difficult to achieve unless current practices within Russia can be changed. This would require inter-governmental discussions to
address upgrading of Russian rail capacity, changes in rail freight pricing arrangements, and access to
Russian port terminals. Russia applies discriminatory freight charges to foreign coal as opposed to domestic coal. Rail freight for foreign coal from Naushki to Vostochnaya (4,047 km) would cost about $85/tonne. Russian coal producers in Siberia typically pay about $25/tonne, for hauls of about 4000 km.
Even if adequate commercial arrangements can be made with Russian railways, Russia's Pacific ports
are currently close to capacity. In 2006, the eastern port capacities were: Vostochnoy - over 15 mtpa; Posyet - over 1.9 mtpa; Nakhodka - 0.4 mtpa; and Vanino - 0.6 mtpa. Combined, the ports shipped
18.3 million tons in 2006. Several expansion projects are currently underway.
In addition to questions of physical port capacity, there are likely to be difficulties in gaining access
to port terminals, which are largely controlled by Russian coal companies or their marketing arms. In 2004, China attempted to export products,particularly coal, from a region adjacent to the Russian ports of Posyet and Zarubino, where they proposed to construct new terminals. The Russian government advocated the use of existing port facilities by Russian companies, and didn't feel that it was appropriate to rent out port terminals to foreign companies.
World Bank estimates of costs for rail freight through China and Russia are not necessarily the prices that Mongolian coal will be charged.Nevertheless, these numbers suggest that there is a highly significant cost advantage in exporting through China. Moreover, the cost estimates for Russian rail are likely to be under-estimates, and the total cost of Russian exports does not leave much profit margin with current coking coal prices.
FRONTIER SECURITIES views that there needs to be more data regarding viability for TT coal through Russian ports, however, it appears that there is a increasing probability of Russian coal route being commercially attractive for Northern Mongolian regional coal miners such as Sharyn Gol, Prophecy Resources, Aspire Mining and others.
Posted by MongolianPortfolio.com at 12/07/2010 03:48:00 PM
Internetlink: http://www.mongolianportfolio.com/2010/12/...-for-mongolian-coal.html
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